Renting of Immovable Property Services [Sec 65(105)(zzzz)]
Effective upto 30th June, 2012
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Landmark Service Tax Judgment - Renting of Immovable Property Services 

INTRODUCED: With Effect From 1st June 2007
 
Contents
Scope
Exemption
Clarification
Relevant Notifications / Circulars
Landmark Judgements
News
Accounting Code
Service Tax 00440406
Interest  00440407
Penalty 00441456
 
DEFINITION:

According to Section 65 (105) (zzzz) to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or, for furtherance of, business or commerce.

Explanation 1 - or the purposes of this sub-clause, “immovable property” includes-

(i) building and part of a building, and the land appurtenant thereto;

(ii) land incidental to the use of such building or part of a building;

(iii) the common or shared areas and facilities relating thereto; and

(iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate,

(v) vacant land, given on lease or license for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce;

But does not include-

(a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes;

(b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land;

(c) land used for educational, sports, circus, entertainment and parking purposes; and

(d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.

Explanation 2.—For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course  or  furtherance of business or commerce;

According to Section 65 (90a), “renting of immovable property” includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include-

(i)  Renting of immovable property by a religious body or to a religious body; or

(ii) Renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching center.

Explanation 1 - For the purposes of this clause, “for use in the course or furtherance of business or commerce” includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings;]*

Explanation 2 - For the removal of doubts, it is hereby declared that for the purposes of this clause “renting of immovable property” includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property;

 
SCOPE:
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Renting includes letting, leasing, licensing or other similar arrangement. The contract is for right-to-use an immovable property for a consideration. Immovable properties excluded from the scope of this service are

(a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes;

(b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land;

(c) land used for educational, sports, circus, entertainment and parking purposes; and

(d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.

Exclusion from service tax even when immovable property is given for rent:

(i)  Renting of immovable property by a religious body or to a religious body; or

(ii) Renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching center.

Where renting of immovable property is a single composite contract involving part of property for use in commerce or business and part of it for residential / accommodation purposes, for the purpose of levy of service tax under this sub-clause, entire property under the contract is treated as property for use in commerce or business and accordingly the total value of the contract shall be the taxable value.  

Use of immovable property is allowed for placing vending / dispensing machines in malls and other commercial premises and erection of communication towers on buildings. In such cases, there may or may not be transfer of right of possession or control of the immovable property in favour of the person using such property.

Renting of immovable property includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce. Transactions mentioned in above para get covered under the category of other similar arrangement, if not covered under other categories.

 
SERVICE TAX EXEMPTIONS:
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(a)  Small service providers whose aggregate value of taxable services rendered in the previous year has not exceeded the limit of Rs. 10,00,000/-  (Service Tax Notification No. 8/2008-ST dated 01.03.2008)

(b)  Services provided to the United Nations or International Organisations

(c)  Services provided to Special Economic Zones (SEZ) units (including unit under construction) and SEZ developers

(d)  Services which are exported as per ‘Export of Services’ Rules

(e)  Services provided for official or personal use of foreign diplomatic missions and family members of diplomatic missions.

(f)  Services provided by Reserve Bank of India

(g)  Out of total value of service provided proportionate value of goods and material provided by the Service Provider

 
SERVICE SPECIFIC EXEMPTION:

Taxable service of renting of immovable property, referred to in sub-clause (zzzz) of clause (105) of section 65 of the Finance Act, is exempt from so much of the service tax leviable thereon as is in excess of the service tax calculated on a value which is equivalent to the gross amount charged for renting of such immovable property less taxes on such property, namely property tax levied and collected by local bodies:

Any amount such as interest, penalty paid to the local authority by the service provider on account of delayed payment of property tax or any other reasons shall not be treated as property tax for the purposes of deduction from the gross amount charged:

Wherever the period for which property tax paid is different from the period for which service tax is paid, property tax proportionate to the period for which service tax is paid shall be calculated and the amount so calculated shall be excluded from the gross amount charged for renting of the immovable property for the said period.

Illustration:

Property tax paid for April to September = Rs. 12,000/- (i.e. per month Rs. 2,000/-)

Rent received for April = Rs. 1,00,000/-

Service Tax payable for April = (1,00,000 – 2,000) × Applicable rate of service tax
                                               = Rs. 98,000/- × 10.3%
                                               = Rs. 10,094/-     

 
CLARIFICATION:
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ISSUE 1: Commercial or industrial construction service [section 65(105)(zzq)] or works contract service [section 65(105)(zzzza)] is used for construction of an immovable property. renting of an immovable property is leviable to service tax [section 65(105)(zzzz)].
Whether or not, commercial or industrial construction service or works contract service used for construction of an immovable property, could be treated as input service for the output service namely renting of immovable property service under the Cenvat Credit Rules, 2004?

ANSWER 1: Right to use immovable property is leviable to service tax under renting of immovable property service. Commercial or industrial construction service or works contract service is an input service for the output namely immovable property. Immovable property is neither subjected to central excise duty nor to service tax.
Input credit of service tax can be taken only if the output is a 'service' liable to service tax or a 'goods' liable to excise duty. Since immovable property is neither 'service' nor 'goods' as referred to above, input credit cannot be taken.

ISSUE 2: Whether the activity of screening of film supplied by a film distributor would fall under the taxable service category of “renting of immovable property”?

ANSWER 2: It is clarified that screening of a movie is not a taxable service except where the distributor leases out the theater and the theater owner get a fixed rent. In such case, the service provided by the theater owner would be categorized as ‘renting of immovable property for furtherance of business or commerce’ and the theater owner would be liable to pay tax on the rent received from the distributor.

 
RELEVANT SERVICE TAX NOTIFICATIONS:
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Service Tax Notification No. 24/2007-ST dated 22-5-2007 Exemption Notification
 
RELEVANT SERVICE TAX CIRCULARS/INSTRUCTIONS/TRADE NOTICES:
Service Tax CBEC Instruction Letter F. No. 276/282/2010,CX.8A dated 24-02-2011 Clarification for recovery of Service Tax on Renting of Immovable Property services
Service Tax CBEC Instruction letter (F. No.334/1/2010-TRU), dated 26-02-2010 Clarification regarding the changes made by the Finance Bill 2010 including the purpose and scope of amendment made to the definition of renting of immovable property services
Service Tax Circular No. 109/03/2009 dated 23-02-2009 Clarification of issue.
Service Tax CBEC Instruction Letter File No. 334/1/2008-TRU dated 29-02-2008
Service Tax Circular No. 98/1/2008 dated 04-01-2008 Clarification of Issue.
Service Tax CBEC Instruction Letter F.No.137/26/2007-CX.4, dated 15-12-2008 Clarification regarding taxability of commission received by various banks against government business transaction and in r/o godowns let out on rental basis to private parties.
Service Tax CBEC Instruction Letter F. No. 280/46/2007-CX. 8A, dated 24-04-2008 Transfer of High Court Writ Petitions challenging levy of service tax on renting of immovable property to the Supreme Court.
Service Tax CBEC Instruction Letter F. No. 137/186/2007-CX. 4, dated 23-08-2007 Enquiry about Service Tax on Movie Theatre under the head renting of immovable property.
Service Tax CBEC Instruction Letter F. No. B1/16/2007-TRU, dated 22-05-2007 Clarification regarding changes introduced by the Finance Act, 2007 including those relating to renting of immovable property.
Service Tax CBEC Instruction Letter File No. 334/1/2007-TRU dated 28-02-2007
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Case Laws Related

  • STO 2013 CESTAT 1219
  • Renting of Immovable Property: Prior to 01.07.2010 renting of vacant land is not covered under RIP service.

  • STO 2013 CESTAT 948
  • Renting of Immovable Property: Demand: Stay: Part of the property is given on rent by the appellant to various persons and collecting the rent: Such an activity would fall under the category of renting of immovable property services: Directions issued for partial pre deposit.

  • STO 2013 CESTAT 1084
  • Renting of Immovable Property: Stay: On the basis of Delhi High Court judgment holding that service tax was not leviable on income of rent from immovable property: Larger period cannot be invoked: Waiver from stay granted.

  • STO 2013 CESTAT 223
  • Renting of Immovable Property: Appellants deposited 50% in cash and bank guarantee for 50% in terms of judgment of Honorable Supreme Court in Home Solutions: Pre deposit for balance amounts waived.

  • STO 2013 CESTAT 183
  • Renting of Immovable Property: Demand: Stay: Property jointly owned: Rent received individually: Threshold exemption of Rs.10 lakhs as per Notification No. 6/2005-ST, dated 1-3-2005 admissible and demand remains within threshold: Waiver from pre deposit granted.

  • STO 2013 CESTAT 629
  • Business Support Service: Renting of Immovable Property: prima facie the charges collected by the appellant from its licensee are in the nature of rent: Pre deposit waived.

  • STO 2013 CESTAT 158
  • Renting of Immovable Property: Stay: 50% of the disputed Service Tax liability was deposited by M/s Future Value Retail Ltd and M/s Pantaloon Retail (India) Ltd - both of Future Group Venture and balance 50% amount has been deposited by the appellant : Stay granted.

  • STO 2013 CESTAT 433
  • Renting of Immovable Property: Valuation: Whether notional interest on interest free deposit taken for renting of property is includible in the taxable value: Prima facie there is no question of any notional interest as it is a general practice prevailing in the country to take interest free deposit at the time of giving immovable property on rent for commercial or residential purpose. 

  • STO 2013 CESTAT 228
  • Banking Service: Renting of Immovable Property: Banks took action under SARFESI Act and factories of defaulter taken over and leased out: Activity falls under RIP service: Service tax already paid: Stay granted from balance amounts.

  • STO 2013 CESTAT 165
  • Renting of Immovable Property: Commercial concern: Renting out of premises to Bank, BSNL and Post Office amounts to renting of property for use in course of furtherance of business or commerce: Bank and BSNL are commercial organizations: Renting of premises to Post Office: Matter needs to be considered after examining the provisions of the Indian Post Act: Matter remanded.

  • STO 2013 CESTAT 4
  • Renting of Immovable Property: Joint lease: SSI exemption: Notification talks about the aggregate value of the taxable services rendered, should be considered for the purpose of exemption and in this case if individually all the appellants be considered as provider, of such service, their aggregate value does not exceed the threshold limit: Stay granted.

  • STO 2012 CESTAT 1036
  • Renting of Immovable Property Service: Joint Ownership of property rented out: Department considers the entire property belonging to one person: Even individual value is below threshold exemption limit: Stay granted.

  • STO 2012 CESTAT 936
  • Renting of Immovable Property: Electricity meters installed in all the premises rented out and electricity charges collected from the tenants: Electricity being ‘goods’ value not includible as per Notification No. 12/2003 - S.T: Waiver granted from pre deposit.

  • STO 2012 CESTAT 831
  • Renting of Immovable Property: Service Tax and interest paid: Amendment in budget of 2012 waived imposition of penalty.

  • STO 2012 CESTAT 777
  • Renting of Space: Demand: Stay: Appellants contention that advertiser has included the value of this service and already paid service tax, they have only rented the space: Stay granted.

  • STO 2012 CESTAT 793
  • Renting of Immovable Property: Lease agreement includes providing land, plant and machinery: Appellants also receiving lease money apart from consideration for doing job work on behalf of Diageo: Directions for pre deposit issued. 

  • STO 2012 CESTAT 768
  • Renting of Immovable Property: Joint lease of property: SSI exemption considered on aggregate basis, if individual service provider is considered to have provided separate service, taxable value within SSI exemption: Stay granted.

  • STO 2012 CESTAT 756
  • Renting of Immovable Property: Property jointly leased out: Within SSI exemption: Stay granted.

  • STO 2012 CESTAT 741
  • Renting of Immovable Property: Penalty: As per section 80A if the outstanding service tax is paid along with interest, no penalty.

  • STO 2012 CESTAT 669
  • Renting of Immovable Property: Building rented for being used as hotel, inn, etc excluded from tax net: Stay granted based on earlier decision.

  • STO 2012 CESTAT 912
  • Renting of Immovable Property: Service tax with interest paid within 6 months of amendment brought by Budget of 2012: No penalty imposable.

  • STO 2012 CESTAT 474
  • Renting of Immovable Property: Joint Ownership: If the cheques for rent are received individually by all the appellants, it was indicated in the agreement between the individuals for the purpose of renting out of premises to another person so as to make it specific that individually they are renting out the property to a person.. If individually all the appellants be considered as provider of such service, their aggregate value does not exceed the threshold limit. Stay granted.

  • STO 2012 CESTAT 641
  • Renting of Immovable Property: Properties owned by different individuals leased under a single deed: Issue whether they would be eligible for threshold exemption individually: Stay granted as in similar matters it has been granted. 

  • STO 2012 CESTAT 642
  • Renting of Immovable Property: Property jointly leased out: SSI exemption prima facie found admissible to each individual owner: Stay granted. 

  • STO 2012 CESTAT 242
  • Renting of Immovable Property: Joint Ownership of property: Stay: Facts required to be examined at length: Directions for partial pre deposit issued.

  • STO 2012 CESTAT 234
  • Renting of Immovable Property: Appellants having rented hotel buildings: Immovable property does not include building used solely for residential purposes and buildings used for the purpose of accommodation including hotels, hostels, boarding houses, holiday accommodations, tents, camping facilities: Prima facie case made out: Stay granted.

  • STO 2012 CESTAT 210
  • Renting of Immovable Property: Demand: Stay: building used solely for residential purposes and buildings used for the purpose of accommodation including hotels, hostels, boarding houses, holiday accommodations, tents, camping facilities not included in the definition: Stay granted.

  • STO 2012 CESTAT 306
  • Renting of Immovable Property: Appellants receipt shown appears within threshold exemption limit: Matter remanded for reconsideration.

  • STO 2012 CESTAT 37
  • Renting of Immovable Property: Vacant land not covered: However, since vacant land was given for specific purpose: Partial stay granted.

  • STO 2011 CESTAT 1
  • Service Tax: Cenvat Credit: Construction and renting of immovable property: Pre-deposit: The arguments advanced and discussed above would show that the issue is of interpretation and also of admissibility of Service Tax paid on various services and require detailed consideration of the relevant rules as well as precedent decisions on the subject. Under these circumstances, the amount of approximately Rs.2 lakhs already deposited by the appellant is sufficient for the purpose of pre-deposit. (para 4,5)

  • STO 2010 AP 137
  • Service Tax: Renting of Immovable Property: Retrospective Effect: Pending further orders in this application or in the writ petition, not to initiate any coercive steps for recovery of the service tax on the renting of immovable property by the petitioners, on the basis of the provisions of Section 65 (105) (zzzz) as amended by the Finance Act, 2010, for the period 01/06/2007 to 01/04/2010.

    Service Tax: Renting of Immovable Property: Prospective Effect: Petitioner shall, however, be liable to pay the applicable service tax as per the provisions of Section 65 (105) (zzzz), for the period subsequent to 01/04/2010 but subject to the result of the writ petition, notice.

  • STO 2010 Del 296
  • Service Tax: Renting of Immovable Property: No recovery of service tax in respect of renting of immovable property alone.

    Service Tax: Renting of Immovable Property: Liability to pay Service Tax: It is made clear that in the event the writ petition is dismissed, the liability to pay service tax along with any other liability as a result of the demand made, will solely be that of the petitioner.

    Service Tax: Renting of Immovable Property: Other service in relation to such renting: There is no challenge in this writ petition to the second part of the aforesaid provision, namely, “any other service in relation to such renting” and consequently, if there is any other such service, the service provider would be liable to pay service tax on such service and in respect of this portion of the provision there is no stay.

  • STO 2009 Del 1582
  • Renting of immovable property: Stay not granted by Apex Court - The judgment of this Court is challenged by filing the SLP, till date there is no order passed by the Supreme Court staying the operation of that judgment. In these circumstances, the respondent could not instruct their officers to peruse the matter with tax payers calling upon them to pay service tax or to resort to other means under the law to protect the Revenue. The manner in which the letters are written clearly indicate that the payment of tax is demanded and the threat is also extended that if there is no compliance, Department would initiate further necessary action against them. (para 8)

    Mr. Chandhiok, learned ASG appearing for the respondent, assures that corrective steps shall be taken by issuing further instructions, in supersession of earlier instructions, to the officers not to write such letters demanding the payment of service tax or threatening coercive steps. On this assurance no further orders are required to be passed in this Writ Petition. Writ Petition is disposed of. Dasti. (para 9)

  • STO 2009 Del 825
  • Renting Of Immovable Property: The renting of immovable property for use in the course or furtherance of business of commerce by itself does not entail any value addition and, therefore, cannot be regarded as a service.

    Value Added Tax: Service Tax is a value added tax. It is a tax on value addition provided by a service provider. It is obvious that it must have connection with a service and, there must be some value addition by that service. If there is no value addition, then there is no service.

    Services In Relation To : There is no dispute that any service connected with the renting of such immovable property would fall within the ambit of Section 65(105)(zzzz) and would be exigible to Service Tax.

    Other service: Such as air conditioning service provided alongwith the renting of immovable property, then it would fall within Section 65(105)(zzzz).

    Ultra Vires: Section 65(105)(zzzz) does not in terms entail that the renting out of immovable property for use in the course or furtherance of business of commerce would by itself constitute a taxable service and be exigible to service tax under the said Act. The obvious consequence of this finding is that the interpretation placed by the impugned notification and circular on the said provision is not correct. Consequently, the same are ultra vires the said Act and to the extent that they authorize the levy of service tax on renting of immovable property per se, they are set aside.

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